I’ve said it before, and I’ll say it again: Ford Motor Company (NYSE:F) stock won’t be a long-term winner any time soon.
F stock has had a nice run recently. Better-than-expected U.S. sales trends, newly issued ambitious growth targets in China and higher hopes for corporate tax reform have sent the F stock price 10% higher over the past three months. That compares favorably to a 6% gain for the S&P 500.
But this rally is just a head fake in an otherwise unexciting stock. Since 2014, the F stock price has gradually eroded from $17.50 to around $12.50 today. There have been false breakouts, but nothing has changed the overarching, down-and-out course of F stock.
I think this erosion in the F stock price will continue into the foreseeable future.
Why? Three big reasons.
For a while, I’ve maintained that there are three big reasons to sell F stock. Now that F stock has risen and is trading at a healthy premium to its trailing five-year average valuation, I believe these three major headwinds will start to rear their ugly head soon.
Firstly, Ford stock already had its day in the sun. Automotive demand globally has been on fire. But now its starting to slow. Everywhere.
In the U.S., Ford has gone from 5.3% unit growth in 2015, to 0.1% growth in 2016, to a 1.3% decline so far in 2017. That is an unfavorable trend that implies that peak auto sales have already come and gone.
The same trend is playing out in Europe, where Ford’s unit sales growth has gone from 5% last year to 0.8% this year.
The trend is ugliest in China. In 2016, Ford’s unit sales in China grew 14%. So far in 2015, Ford’s China sales are up only 5%. Most recently, in October, sales fell 5%. In other words, Ford’s growth in China has gone from up 14% last year to down 5% last month.
Ford is trying to turn growth around in China by launching 50 new vehicles, all of which (after 2019) will be connected and 15 of which will be EVs. But Chinese automakers are starting to up the competition, too, and that means that Ford may not experience the robust growth in China that management hopes for.
Secondly, while most will point to the current peak in auto sales as a natural top in a multi-decade cycle, there could be more at play.
The rise of the at-home economy provides a serious long-term headwind to automotive demand. People don’t drive to the movies as much as they used to. They sit at home and watch Netflix, Inc. (NASDAQ:NFLX).
People don’t go out and eat as much as they used to. They sit at home and order food from GrubHub Inc (NYSE:GRUB). People don’t grocery shop as much as they did in the past. They sit at home and have Blue Apron Holdings Inc (NYSE:APRN) deliver meal kits.
And when those people do leave home, they don’t drive their own cars as much as they used to. They use ride-sharing services like Uber and Lyft.
Overall, consumers don’t really need to own a car in this booming at-home economy that has Lyft and Uber. The at-home economy is only growing and so is the popularity of ride sharing. This is a long-term headwind for automotive demand.
Thirdly, Ford will be subject to increased competition globally as the EV revolution takes off.
Governments across Europe and Asia are setting goals to be all-electric by 2025 to 2040. While Ford is certainly positioning itself to compete in this new era of electric vehicles, competition will be stiffer than it currently is. Ford is a brand name in the gas-powered vehicle space but not in the EV space. That name is Tesla Inc (NASDAQ:TSLA).
Ford certainly won’t disappear, but I don’t see the company’s value in five years being that much greater than it is today.
Consequently, I don’t see any reason to own F stock.
As of this writing, Luke Lango was long NFLX, GRUB, and TSLA.